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Myanmar has too many banks

The domestic market is still underserved by local banks despite a large number being approved to open in recent years, according to experts.

Shwe Rural and Urban Development Bank, tied by local media to conglomerate Shwe Thanlwin led by tycoon U Kyaw Win, is the latest local bank to receive a private banking licence in Myanmar.

There are now 23 commercial banks and four state-owned banks licensed to operate in the country, with eight of them added between 2010 and 2014. Sources have said even more local banks are likely to be approved soon.

However, some banking insiders say there are too many banks offering not enough services, pushing for fewer, stronger financial institutions in the country.

Global Treasure Bank director U Kyaw Lwin said some banks are not in a strong enough position to add many branches, while there is a shortfall of banking infrastructure in rural areas. Global Treasure Bank was known as Myanmar Livestock and Fisheries Development Bank before rebranding two years ago.

Creating stronger local banks could involve mergers among different institutions, but it will be tricky to negotiate policies and balance leadership that is acceptable to both parties.

“I haven’t heard of a bank that has designs to merge so far, even if their capital is very low,” said U Kyaw Lwin.

Different banks often have different specialties, such as deposits, remittances or loans, said U Soe Thein, executive director of Asia Green Development Bank.

Banks could potentially complement each other were they to merge, while staying separate means they are often weaker, he said.

“Each bank has ability and is strong in a specific area,” he said. Rather than try to develop areas in which they are weak, the banks could improve by merging with other banks that have complementary strengths.

Many of the recently approved banks are specialist institutions.

Three of the last four were Nay Pyi Taw Sibin, Myanmar Microfinance and the Construction and Housing Development banks, which all received their licences in 2013. However, some have questioned the need for many specialised banks, claiming fewer, larger-scale banks could better meet consumers’ needs.

A manager with state-owned Myanma Economic Bank said even though there are specialised banks in sectors like rural development and construction, many borrowers don’t bother with them and use the larger banks instead.

“It will be hard for the Central Bank to control the banks if the number keeps on growing,” he said.

While Myanmar will have 23 private commercial banks when Shwe bank opens, other more developed economies in the region have fewer – Thailand for instance has 14 Thai commercial banks.

However, a Central Bank official downplayed concerns there are too many banks in the country, claiming the current number is appropriate for 51 million people and adding there were about 28 in the colonial period.

“We plan to extend [the Central Bank] and hire more experts, so I think

we can handle the situation,” he said.

“But, in the longer run each commercial bank needs to target stronger assets and capital levels.”

Economist and writer U Hla Maung said domestic banks have not been able to assist the public despite being open near 20 years. He said the Central Bank should be vigilant on checking financial statements and actively encourage local banks to merge.

“Local banks need to practice policies of merger and acquisition instead of creating confusion with new challenges,” he said.

Myanmar banks also face a number of restrictions on the products they can offer as well as interest rates on loans and deposits.

Source: Myanmar Times

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